VTB Sees 4% Sberbank Premium as Limit Reached: Russia Overnight

OAO Sberbank’s depositary receipts will rise to a premium of as much as 4 percent over the lender’s Russian shares as foreigners seek the securities after a limit on converting stock was reached, according to VTB Capital.

American depositary receipts of Sberbank fell 1.7 percent to $14.03 in New York yesterday, trading at a 0.3 percent premium to its Micex Index-listed shares. The Bloomberg Russia-US Equity Index of the most-traded Russian stocks in the U.S. slumped to a two-week low as oil, the nation’s biggest export earner, fell a second day. Futures on the RTS Index fell 1.1 percent to 157,690 by 5:34 p.m. in Moscow today.

Sberbank said Feb. 6 that its DR program, where local shares are converted into securities traded in London and New York, had been halted. DRs can only account for 25 percent of a company’s shares and 50 percent of its listed shares, according to Russia’s market regulator. Investors need to set up trading accounts through local custodians to trade domestic Russian stocks, which can deter foreigners from the Micex, according to Mikhail Shlemov, chief banking analyst at VTB Capital.

“Many people expect a premium,” Ronny Rehn, an analyst at Keefe, Bruyette & Woods Inc. who rates Sberbank a buy, said by phone from London yesterday. “It should trade one-to-one, but some investors can’t trade it locally and if they really want to jump on it, they would buy depositary receipts.”

Sberbank ADRs in New York have settled at a premium versus the lender’s Moscow-traded shares every day since Bank of New York Mellon Corp. issued a Jan. 30 warning on Sberbank’s DR program approaching its limit.

ETF Declines

The lender’s London-listed DRs rallied 1.3 percent to $14.08 today, trading at a 0.46 percent premium to Sberbank’s Moscow-listed shares.

The Market Vectors Russia ETF, the biggest U.S.-traded exchange-traded fund that holds Russian shares, dropped 1.1 percent to $30.30 yesterday, falling for a second day. The RTS Volatility Index, which measures expected swings in the index futures, gained 4.7 percent to 20.83 in Moscow today.

OAO Mobile TeleSystems, Russia’s biggest mobile-phone company, has already reached its DR conversion limit, according to VTB’s Shlemov.

The ADRs, which fell 0.7 percent to $19.80 yesterday, trade at a 16 percent premium in New York to the Moscow shares, data compiled by Bloomberg show. Shares of Krasnodar-based food retailer OAO Magnit also can no longer be converted into DRs and its global depositary receipts in London trade 18 percent above the Moscow stock.

‘Limited Access’

“Foreign investors have limited access to Russia’s domestic stock market,” VTB’s Shlemov, an analyst at the investment arm of Russia’s second-largest bank, VTB Group, said by phone from Moscow yesterday. “And yet they have a huge appetite for Sberbank shares, which leaves them with no other choice but depositary receipts.”

Shlemov rates Sberbank’s Micex stock a buy.

The average value of Russia’s biggest companies is about 45 percent higher in London than in Moscow, data compiled by Bloomberg show. Russian authorities are trying to modernize the Moscow Exchange’s trading system, which runs the 50-stock Micex Index, and open up access to the domestic market. The country merged its two competing depositories Nov. 6 to bring settlement procedures into line with international norms.

Russia’s Federal Financial Markets Service may lift restrictions on converting local shares into depositary receipts, the Interfax newswire reported Oct. 19, citing Dmitry Pankin, the service’s chief.

‘Too Risky’

Sberbank’s DR premium won’t reach the levels of MTS and Magnit, according to Vladimir Savov, a banking analyst at Otkritie Financial Corp. in Moscow.

“It’s too risky to play the premium on Sberbank, where liquidity is lower and the environment is such that the limit on local shares’ conversion to depositary receipts could be eliminated already next year,” he said by phone yesterday.

Savov rates Sberbank’s Moscow-listed stock a buy and expects the DR premium to swell to as much as 3 percent.

Oil rose 0.2 percent in New York today to $95.97 a barrel, after slumping 0.8 percent yesterday. Brent crude climbed 0.9 percent to $118.24 a barrel in London. Urals crude, Russia’s chief export blend, rose 0.5 percent to $115.73.

Futures expiring in March on the ruble show the currency weakening 0.2 percent to 30.366 per dollar, with the ruble down less than 0.1 percent today to 30.1990. The currency was little changed at 34.7693 against Bank Rossii’s dollar-euro basket.

OAO Mechel, Russia’s biggest producer of steelmaking coal, fell 2.9 percent to $6.39 in New York yesterday, the lowest level for its ADRs since Dec. 7, settling at a 2.3 percent discount to the company’s Moscow-listed shares. Mechel’s ruble-denominated Moscow-listed stock slipped 1.9 percent to 194 rubles, or $6.43.

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